Rep. Ron Paul schedules hearing on 'manipulation of interest rates'

[sailingaway]

The Federal Reserve, that private organization that determines interest rates and the availability of money in America, is going to be examined by a congressional committee whose chairman is worried it is setting the nation up “for a much larger crash in future.”

The plans for a review of Fed actions were announced today by U.S. Rep. Ron Paul, who heads the Domestic Monetary Policy and Technology Subcommittee.

The hearing will focus on the Fed’s recent practice of essentially loaning money to large banks and others for no interest at all.

“The Federal Reserve is relentless in pursuing a policy of zero interest rates, as manifest by their decision last week to engage in another round of quantitative easing and keep the federal funds rate at zero for another three years,” Paul said.

Fed Chairman Ben Bernanke announced just days ago another round of money printing by the U.S. government.

The Fed’s third attempt at such a maneuver will involve having the government buy $40 billion in mortgage-backed securities per month, with no set end date.

The central bank’s objective is to keep interest rates low, and thus trigger more spending and more hiring. The Fed has been trying to impact the economy for the duration of Barack Obama’s tenure in the White House, but its usual tool – lowering interest rates – is ineffective now since those rates have been approaching zero for most of that time.

Paul for years has advocated a full audit of the Federal Reserve, which routinely shrouds its actions in secrecy. Just last week, the U.S. House on a 327-98 vote adopted a bill that would set an audit process in motion. It now is going to the Senate, where Sen. Harry Reid previously has been receptive to the idea, although there’s no word whether he’ll take time for it now.

“The Fed is intent on ignoring that their policy of low interest rates in the past brought us the financial crisis of 2008 and their zero interest rate policy of today is prolonging the agony while sowing the seeds for a much larger crash in future,” Paul said today.

“Their manipulation of interest rates – essentially price setting – can only ever have destructive effects on the American economy. Artificially low interest rates continue to cause malinvestment and misallocation of resources throughout the economy. Savers and investors suffer from negative real interest rates, while the federal government takes advantage of the Fed’s zero interest rate policy to run up gargantuan fiscal deficits.

“These problems cannot and will not be remedied until the Fed stops manipulating the price of money,” he said.

The hearing is called, “The Price of Money: Consequences of the Federal Reserve’s Zero Interest Rate Policy,” and will be held on Sept. 21st, at 9:30 a.m. in room 2128 of the Rayburn House Office Building in Washington.

Among those expected to testify are James Grant, editor of Grant’s Interest Rate Observer, and Lewis E. Lehrman, senior partner, L.E. Lehrman & Co.

more at link: http://mobile.wnd.com/2012/09/federal-reserve-accused-of-setting-u-s-up-for-crash/

 

[eleganz]

I can see the headlines three days after the hearing....

"Mitt Romney condemns manipulation of interest rates"

 

[sailingaway]

I can see the headlines three days after the hearing....

"Mitt Romney condemns manipulation of interest rates"

LOL!

No, it will be Ryan. No one expects what the VP says to turn into policy...

 

[PatriotOne]

Among those expected to testify are James Grant, editor of Grant’s Interest Rate Observer, and Lewis E. Lehrman, senior partner, L.E. Lehrman & Co.

Lehrman is an interesting choice to testify to say the least. Some here will understand this list of reasons why:

He was a member of the Board of Directors of the Project for the New American Century

In 1983 he helped to found Citizens for America, an organization which aided Oliver North's campaign to supply the anti-communist Contra guerrillas in Nicaragua. In 1985, the organization was run for a short time by future lobbyist and convict Jack Abramoff. Abramoff was later fired for mismanaging the organization's funds.

In the late 1970s he was a Trustee to the American Enterprise Institute and was a member of the Heritage Foundation until the 1990s.

Member of Wolf's Head Society (Yale secret society)

Investor in George W. Bush's Arbusto Energy.

Lehrman was a managing director of Morgan Stanley in the late 1980s.

And then this seems so out of place..................

Lewis E. Lehrman was a member of the U.S. Gold Commission in 1981 with Congressman Ron Paul. In 1982, they co-authored the book The Case for Gold with a team of economists that included Murray Rothbard.

 

[Mini-Me]

Wow, PatriotOne, that IS bizarre. I don't know what to make of that. I mean, you could argue that he's an interventionist hawk who understands monetary policy, but if that were the case, he would also understand that fiat money is the blood in the hawk's veins. His support of South American militants (reminds me of School of the Americas) may not carry a huge enough price tag to require fiat money, but I can't see how he could have achieved his status within the PNAC without being a warmonger, which does depend on fiat money.

 

[ClydeCoulter]

Wouldn't a sound dollar be good for those that have stolen everything, once it's accomplished? The fiat system is a tool, and once it's usefulness is over...

 

[matt0611]

Sounds great

 

[kathy88]

I can't wait to watch Ron in action again.

 

[Mini-Me]

Wouldn't a sound dollar be good for those that have stolen everything, once it's accomplished? The fiat system is a tool, and once it's usefulness is over...

No, not really. They have to continue skimming from the top and destroying people's savings and buying power, unless they want wealth to gravitate downward.

Look at China's manufacturing situation: They mass produce enormous quantities of goods. Up to this point, they have exported a huge percentage of their goods to us for petrodollars, then bought our debt and diluted their own currency so they could keep selling us cheap goods for dollars. Exporting so much keeps the supply of goods down in their country and keeps domestic prices up, and diluting the currency erodes savings and increases prices faster than wages (or offsets price decreases that would otherwise occur), which perpetuates the export situation, since Chinese consumers can't afford to buy as much as foreigners. (This not only brings in oil but benefits bankers.)

Now, consider what would happen if China DIDN'T devalue their currency: The buying power of Chinese consumers would increase, and they could consume more goods domestically, while their savings actually maintained their value. Their material wealth would therefore increase, and their buying power would only continue to skyrocket as they continued to produce goods (more and more of which would begin to flood their domestic market). Over time, their savings and buying power would also allow people to be pickier about jobs/wages, start their own businesses, etc.

Long story short: As long as a country is producing a ton of goods and not devaluing its currency, the people will grow richer, and the balance of power will gradually shift from corporations to workers as people become less desperate for work. That's what the market does...so if the elite want to continue holding all of the wealth and all of the power forever, they need to continue devaluing the currency perpetually.

 

[affa]

Wow, PatriotOne, that IS bizarre. I don't know what to make of that.

Unfortunately, the rabbit hole is so deep we can only hope to be aware there is one, but never quite be sure of where it leads.

 

[July]

Wow, PatriotOne, that IS bizarre. I don't know what to make of that. I mean, you could argue that he's an interventionist hawk who understands monetary policy, but if that were the case, he would also understand that fiat money is the blood in the hawk's veins. His support of South American militants (reminds me of School of the Americas) may not carry a huge enough price tag to require fiat money, but I can't see how he could have achieved his status within the PNAC without being a warmonger, which does depend on fiat money.

True enough, you don't have to be a libertarian to believe in sound money. Has anyone read his essay in "money and the coming world order" published in 1976? It was interesting. He argues that having a reserve currency linked to a specific nation would distablize the world economy, and result in imperial projects by whichever said nation controlled the reserve currency.

 

[Mini-Me]

Unfortunately, the rabbit hole is so deep we can only hope to be aware there is one, but never quite be sure of where it leads.

Yeah, no kidding. Once you start digging deeper into conspiratorial stuff, it becomes a mire of so much information and misinformation that you can't derive any sound conclusions aside from knowing that something's not right.

People are complex though, so it could be that there's a simple explanation for Lehrman: Maybe he just has multiple personality disorder. I'm joking there, but it could be that he's actually ambivalent and compartmentalizes his foreign policy and monetary stances to sidestep his cognitive dissonance, and that the neocons at the PNAC still considered him useful enough to bring aboard.

True enough, you don't have to be a libertarian to believe in sound money. Has anyone read his essay in "money and the coming world order" published in 1976? It was interesting. He argues that having a reserve currency linked to a specific nation would distablize the world economy, and result in imperial projects by whichever said nation controlled the reserve currency.

That's even more bizarre, since imperialism is the entire purpose of the PNAC. Unless he's simply become more corrupt over time (I guess we'll see from his testimony), it boggles my mind that he's unable to see his own contradictions.

 

[VBRonPaulFan]

I can see the headlines three days after the hearing....

"Mitt Romney condemns manipulation of interest rates"

that reminds me of a bday card i saw in target the other day... on the front was a picture of Romney with the caption like:
"People say i'm out of touch, that I don't understand people, and that I don't really know what's going on... well i'm here to tell you..."

and when you opened it up, it said "Merry X-mas".


When you're a political opportunist - you can never be on the forefront of any issues. Your every decision relies on gauging the direction of the wind first, so you're always 3 steps behind.

 

[jay_dub]

Practically speaking, we need the Fed to keep interest rates low. Until we have a balanced budget and start attacking the debt, we simply cannot afford market based interest rates on $16 trillion in debt.

We paid over $450 billion last year in interest on the debt, and that's with artificially low interest rates and a lower debt than now. Anyone care to guess what those interest payments would be under market driven interest rates? Does anyone doubt that this factor alone would lead to economic collapse?

It's a disgusting situation, and I think Ron Paul realizes the pickle we're in. Most likely reigning in the Fed would have been one of those 'transition' things of his precisely because of this.

 

[Occam's Banana]

Practically speaking, we need the Fed to keep interest rates low. Until we have a balanced budget and start attacking the debt, we simply cannot afford market based interest rates on $16 trillion in debt.

We paid over $450 billion last year in interest on the debt, and that's with artificially low interest rates and a lower debt than now. Anyone care to guess what those interest payments would be under market driven interest rates? Does anyone doubt that this factor alone would lead to economic collapse?

It's a disgusting situation, and I think Ron Paul realizes the pickle we're in. Most likely reigning in the Fed would have been one of those 'transition' things of his precisely because of this.

So ... we need to keep rates low until we have a balanced budget & lower debt, but we won't have a balanced budget & lower debt while rates are low (because of *how* the Fed keeps rates low).

Captain Yossarian, we salute you!

We're going to default. That is the *only* way out of the mess we are in. How & under what circumstances remains to be seen.

The only real question is, will we default "honestly" (by declaring bankruptcy & restructuring our debt - bad, but less likely) or will we do it "dishonestly" (by trying to print our way out it - much, much worse *and* more likely).

 

[jay_dub]

Practically speaking, we need the Fed to keep interest rates low. Until we have a balanced budget and start attacking the debt, we simply cannot afford market based interest rates on $16 trillion in debt.

We paid over $450 billion last year in interest on the debt, and that's with artificially low interest rates and a lower debt than now. Anyone care to guess what those interest payments would be under market driven interest rates? Does anyone doubt that this factor alone would lead to economic collapse?

It's a disgusting situation, and I think Ron Paul realizes the pickle we're in. Most likely reigning in the Fed would have been one of those 'transition' things of his precisely because of this.

So ... we need to keep rates low until we have a balanced budget & lower debt, but we won't have a balanced budget & lower debt while rates are low (because of *how* the Fed keeps rates low).

Captain Yossarian, we salute you!

We're going to default. That is the *only* way out of the mess we are in. How & under what circumstances remains to be seen.

The only real question is, will we default "honestly" (by declaring bankruptcy & restructuring our debt - bad, but less likely) or will we do it "dishonestly" (by trying to print our way out it - much, much worse *and* more likely).

Am I somehow mis-representing the dilemma?

And I just don't see how we couldn't have a balanced budget. RP's plan would have taken us a long way towards that goal in just one year, and that's operating under the present structure.

Yes or no....could we support the interest payments on our current debt with market-driven interest rates?

Which is the less bitter poison? The slow devaluing of our currency or the sudden shock of 6%, 8% or even higher interest rates on our debt? Wanna guess what would happen if interest payments hit the $2 Trillion mark?

 

[Occam's Banana]

Am I somehow mis-representing the dilemma?

No. I was (essentially) agreeing with you.

And I just don't see how we couldn't have a balanced budget. RP's plan would have taken us a long way towards that goal in just one year, and that's operating under the present structure.

I don't think balanced budgets really matter at this point - *even* if the political will existed to implement them (which is not the case).

Yes or no....could we support the interest payments on our current debt with market-driven interest rates?

No. We would default. If default happens due to high rates, though, at least it would be an "honest" default, with all the standard accoutrements (debt restructuring, trashed credit rating, etc.). As painful as that would be, it is better than defaulting "dishonestly" by trying to print our way out of the problem in a doomed effort to keep rates low - which will eventually result in the destruction of the dollar (and, in extremis, the horrors of hyperinflation).

Which is the less bitter poison? The slow devaluing of our currency or the sudden shock of 6%, 8% or even higher interest rates on our debt? Wanna guess what would happen if interest payments hit the $2 Trillion mark?

I don't have to guess: default is what would happen. One way or another, it is what is *going* to happen. We are past the point of no return.

It's now a question of "when & how" not "if or maybe." We are in a Catch-22. We are damned if we do and damed if we don't.

If rates were set by the market, interest on the debt would be ruinous. But if rates are *not* set by the market, then it is because the Fed has artificially suppressed them. As long as the Fed keeps doing that, we may be able to meet the interest payments, but the debt will grow and grow and grow ...

We are screwed either way. We will be forced to default sooner or later, "balanced" budgets or not (and "not" is the *far* more likely scenario).

 

[GeorgiaAvenger]

Lew's website: http://www.thegoldstandardnow.org/

 

[Mini-Me]

Practically speaking, we need the Fed to keep interest rates low. Until we have a balanced budget and start attacking the debt, we simply cannot afford market based interest rates on $16 trillion in debt.

We paid over $450 billion last year in interest on the debt, and that's with artificially low interest rates and a lower debt than now. Anyone care to guess what those interest payments would be under market driven interest rates? Does anyone doubt that this factor alone would lead to economic collapse?

It's a disgusting situation, and I think Ron Paul realizes the pickle we're in. Most likely reigning in the Fed would have been one of those 'transition' things of his precisely because of this.

Actually, the Fed's interest rates have no direct effect on the federal government's debt for three reasons:

1. The Fed's federal funds rate doesn't apply to money loaned to the US government through the purchase of Treasury bills/bonds. The interest rates on Treasuries are market-driven and determined at the time of auction: For instance, if a thirty year bond is redeemable for $500 upon maturation and the Treasury sells it for $300, then the interest payments on it will amount to $200 at maturation.
2. The Treasury receives all interest back from the Fed after operating expenses and a 6% dividend paid to Fed shareholders...so even if the fed funds rate applied to Treasuries, this practice would make the actual rate almost irrelevant to the Treasury.
3. The vast majority of the national debt is not held by the Fed anyway but by foreign central banks, private entities, and the Social Security system.

We pay a ton of interest on the national debt every year, but it's not to the Fed. There are a lot of reasons why the Fed is evil, economically destructive, and hugely beneficial to bankers, but the interest on the national debt isn't one of them...well, aside from the unlikelihood of such debt/interest existing in the first place in the absence of the Fed or similar system.

 

[jay_dub]

Actually, the Fed's interest rates have no direct effect on the federal government's debt for three reasons:

1. The Fed's federal funds rate doesn't apply to money loaned to the US government through the purchase of Treasury bills/bonds. The interest rates on Treasuries are market-driven and determined at the time of auction: For instance, if a thirty year bond is redeemable for $500 upon maturation and the Treasury sells it for $300, then the interest payments on it will amount to $200 at maturation.
2. The Treasury receives all interest back from the Fed after operating expenses and a 6% dividend paid to Fed shareholders...so even if the fed funds rate applied to Treasuries, this practice would make the actual rate almost irrelevant to the Treasury.
3. The vast majority of the national debt is not held by the Fed anyway but by foreign central banks, private entities, and the Social Security system.

We pay a ton of interest on the national debt every year, but it's not to the Fed. There are a lot of reasons why the Fed is evil, economically destructive, and hugely beneficial to bankers, but the interest on the national debt isn't one of them...well, aside from the unlikelihood of such debt/interest existing in the first place in the absence of the Fed or similar system.

The Fed's policy of keeping interest rates low has an effect on the yield of Gov't bonds, since these bonds have to compete for the investor's money. Low interest rates in the market will keep the yield on bonds lower. Higher interest rates, through a tightening of the money supply, will put pressure on bonds to have a higher yield. Bond yields are not divorced from market interest rates.

The Fed's interference in markets is proportional to our debt situation. As our debt has gone up, interest rates have gone down. This has been the only way we have been able to afford such debt.

For example, in 1988 we paid $214,145,028,847.73 in interest on a debt of $2,602,337,712,041.16. Jump ahead to 2010 and we paid $413,954,825,362.17 on a debt of $13,561,623,030,891.79. As you can see, we paid less than double the amount of interest in 2010 in relation to 1988 even though our debt load had increased roughly 5 fold. That is directly due to interest rates.

Now, with a debt of $16 trillion and rising, it's easy to see that an increase in interest rates would kill our entire economy. It would have done so long ago without the Fed.

The info I used on the debt and interest paid comes from the Treasury Dept. at the following links.

http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm